US Global Jets ETF (JETS) was a big part of our "Back to Normal" set of trades we made expecting the coronavirus to become less and less disruptive to the economy, says Steve Reitmeister, editor of Reitmeister Total Return.
All three trades rose quite a bit with SPDR S&P Regional Banking ETF (KRE) and Invesco Dynamic Leisure and Entertainment ETF (PEJ) being much more impressive than JETS.
The shame is that the airlines are coming off a poor earnings season with earnings estimates going lower for American (AAL), Southwest (LUV), and United (UAL). This has made shares lose altitude and unlikely to ascend above the pack until their earnings outlook improves. Thus, we will pack up our profits on JETS and buckle up more attractive shares in Dropbox (DBX).
Why DBX?
There are several reasons to like this cloud-based software company used for the sharing of all forms of documents and digital files. And that list starts with it never having earnings miss since it went public in early 2018.
Second, is that we need more tech exposure. Yet hard to do that without overpaying. That is certainly where the value story comes into play with an average target of $36.50 with a bunch of analysts beating the table that $38-40 makes more sense. And the more and it has beat and raise quarters...the higher the fair value will go.
Third, is that I am trying to avoid any problems with the supply chain. To be honest, it feels like a mine field as the supply chain affects almost every company that provides products. And many services companies have concerns about not having the ability to hire enough staff. So, we are sidestepping the supply chain once again as we did with ATVI by going for this cloud-based software company.
Fourth, the shorts used to gang up on this stock for some insane reason that keeps proving less and less logical after each earnings beat. So, at this stage there are not as many shorts on board as the past, but I like the idea of another beat and raise chasing more of them to the sidelines creating a bit more upside for shares.
Fifth, looks very good from POWR Ratings perspective. You might be underwhelmed by the B rating...but remember that 20% of all stocks are B rated (75th to 95th percentile). DBX is in the upper echelon of the B's at the 92.72 percentile. Helping their case is being in the top 1% of the Quality rating, which is the most beneficial in finding alpha (outperformance). The top 6% showing for Growth is also a welcome sight.
To be clear, at some point in the future the airlines will soar above the crowd. But when I recently heard it took six full years for the industry to normalize after 9/11...then I realized the time to get our full return on JETS may be far too long. Couple that with a poor earnings season and just time to take our profits off the table and rotate it an investment more likely to shine now. DBX fits that bill.
Learn more about Steve Reitmeister at StockNews.com.
